China Wants Electric Cars, Does it Want Tesla Motors?

By Ben Levisohn

China has mandated that a big chunk of government-purchased cars be electric vehicles. The market can’t make up its mind whether that’s good news for Tesla Motors (TSLA).

Associated Press

On Saturday, China posted new rules that would require at least 30% of government auto purchases to be electric vehicles. Word of that decision helped send shares of Tesla up 0.8% this morning–and even higher in pre-open trading. Soon after, they fell as much as 1.2%, before bouncing back. Tesla’s shares were up 2.3% at $223.15 at 10:55 a.m.

It’s not hard to see why investors might question whether the China news is good for Tesla. China has a history of making life difficult for non-Chinese companies to do business in the world’s second largest economy, and only a bit more than a week ago, Beijing said it would start building charging stations that wouldn’t be compatible with Tesla’s technology. Of course, China does love its luxury cars, and there’s no more luxurious electric vehicle than a Tesla.

The market has no qualms about Kandi Technologies (KNDI), however. The Chinese company that makes small electric vehicles is up 9.6% at $16.13, the highest close since April 2.

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There are 14 comments

JULY 14, 2014 11:08 A.M.

Napoleon wrote:

Ben,

The story about 10,000 charging stations in China has been misunderstood. Tesla owners will be able to charge their cars if/when the proposed network is created.

It is, of course, correct that China is not building 10,000 SuperChargers. So you could say the Chinese plan is for a charging system that is not based on Tesla's SuperCharger technology, however there is absolutely nothing to indicate that the proposed charging network will be incompatible with Tesla's cars.

You may want to clarify this in this story, your prior story and the MarketWatch story you've based your reporting on.

I write this having spoken to IR at Tesla about this issue. The point is also demonstrated by Tesla's cars ability to charge on the various networks that have been established around the world. In some cases this requires an adapter, but, clearly Tesla owners can charge their cars on these networks.

JULY 14, 2014 11:10 A.M.

chinese Tesla fan wrote:

A model S owner in China contacted Tesla and was interested in buying 20 superchargers and donate them to property owners on route from Beijing to his home.

JULY 14, 2014 11:54 A.M.

Voyager wrote:

Yes, they want all the leading brands in electric car companies as long as they are willing to pass their know how so that China can spurn them when it has no use for them.

JULY 14, 2014 12:16 P.M.

Weapon wrote:

China has so far made some strides towards foreign electric cars, they opened up 3000 free license plates per year and removed 10% taxes. As I mentioned before, Tesla will easily be able to make an adapter for the 10,000 charging stations china will build so it is not an issue. There is nothing in the spec that is not compatible so far.

Considering that Chinese officials will want to drive a luxury car, so far the only real luxury car is the Tesla.

JULY 14, 2014 12:23 P.M.

Kandi's Newer EV wrote:

Kandi's newer EV is already the mini version of the Tesla EVs with all touch screen features. This is the story of VHS (Kandi) vs Betamax (Tesla) playing out all over again. The good thing is that Tesla opened all its patents, to which Sony did not with Betamax.

JULY 14, 2014 12:30 P.M.

Rocket Man wrote:

Space X launch the 6 satellites successfully 1/2 hour ago. They will also attempt a soft landing of the 1st stage rocket in the Atlantic paving the way for reusable rockets. Now that is over, Elon will turn his attention back to Tesla....

JULY 14, 2014 1:16 P.M.

Weapon wrote:

@Kandi's Newer EV - I hope you are joking right? If you were to compare Kandi with Tesla Kandi would be the VHS and Tesla will be DVD. And even then I am giving Kandi too much credit. Everything from Kandi's battery technology to their touchscreen is far inferior to Tesla.

That said, Kandi and Tesla do not really compete and serve different demographics and markets, so there is little sense in comparing them.

JULY 14, 2014 3:11 P.M.

Kandi's Newer EV wrote:

@Weapon, the winner is usually the one that is just good enough. A Kandi EV gets you from point A to point B for cheap. It is available to rent for about $3 per hour.

Now as a driver in China faced with the million dollar question. If he or she has $20 in their pockets, do you think they will be able to take a Tesla for a drive? Not anytime soon.

However, they can rent a Kandi car at multiple locations throughout Chinese cities in the future. Well, the EV rentals are currently taking off at Hangzhou.

JULY 14, 2014 5:22 P.M.

Weapon wrote:

@Kandi's Newer EV - Again, they don't compete so you are not making a point. No one who can afford a Tesla will drive a Kandi, so the point still stands. And at a rate of 3$ per hour * 24 hours = 72$ per day or 2,160$ per month. That is like 2 Tesla cars.

On top of that, how are you going to use a Kandi EV to transport stuff or carry your kids and friends? Kandi has bigger competition from Google and their self-driven cars which will be FREE to use and you don't even have to drive.

Tesla and Kandi don't compete, you are talking about different markets, ownership vs renting.

JULY 14, 2014 6:41 P.M.

Kandi's Newer EV wrote:

@Weapon, to answer the headline of the article, Kandi is the solution and not necessarily Tesla. The point is that Kandi's EV share model is perfect for China's over-congested mega cities.

I see it as the VHS (Kandi) compared to the Betamax (Tesla) where the superior product will not necessarily win. Kandi EVs are built on premise that the EVs will be recycled as technology advances. Kandi EVs are not owned by the general public. They are only available for leasing and renting. This is perfect if the self driving Google car comes to market, where Kandi can recycle the EVs into self driving EVs if needed.

I hope that you are open to the idea that Kandi EVs are just good enough to win China because Kandi EV sharing have the multiplier effect.

Theoretically, 1000 Kandi EVs can be driven by 8,000 different customers if on average each rental is for 3 hours, and can repeat this cycle with 8,000 new customers the next day. Multiply that by 365 days, and you get the probability of 3,000,000 people having access to the 1000 Kandi EVs in one year. Obviously these are unrealistic estimates to prove a point.

However, 1000 Tesla EVs can only be driven by the same 1000 owners forever.

Now, if I was the Chinese government, which company do you think I would prefer to have in the mega cities? It is a no brainer that the Kandi EV share is better for China.

JULY 14, 2014 7:37 P.M.

Weapon wrote:

The article is about government making 30% of their car purchases electric. Based on this article Kandi's solution is not even an option.

And again they are not competing because people who will buy a Tesla will not rent a kandi and people who rent a kandi will not buy a Tesla. So they simply do not compete in any shape or form. On top of that, a Kandi is too small for a lot of the stuff people use cars for.

Also, for your assumption you are no calculating a few major downsides.

1) You have 1000 Kandi EVs, but rush hour tends to be about the same time. So while sharing cars reduces the total amount of cars needed, realistically speaking the reduction is maybe 20-30%, not 800%

2) The kandi cars are small, so small that it may make more sense for a person to use a scooter. The time they need a car is when they have thigns to carry or bring other people and the Kandi is too small for that purpose.

3) The downside to renting is also the cars age quicker. Unlike an owner who takes care of his own property, people could care less about rented cars so often time they get neglected. And once automobiles reach their renting eol they are sold. No one would be interested in a used kandi as it does poorly as an owned car. A used Tesla on the otherhand has plenty of life to it.

At this point, China wants to get gasoline cars off the road, they won't favor either because to them it makes no significant difference. But for the sake of this topic when we are talking about government cars, Kandi is not even competing.

Again, Tesla and Kandi simply do not compete. Betamax and VHS competed, Tesla and Kandi don't. (on top of that the difference between Tesla and Kandi is more of difference between VHS and DVD, worlds apart technologically) Completely different markets and completely different demographics.

JULY 15, 2014 1:00 A.M.

billy wrote:

China is for the Chinese, if you want entry in a big way then keep that in mind - Tesla should work directly with several of the state owed enterprises to build their own net work, privately funded (with gov money) and then they will get what they need - if wait for the next guy to make the decision then you get what you get …

JULY 15, 2014 4:12 P.M.

Buy wrote:

this stock has a lot more room to go

JULY 16, 2014 10:59 P.M.

Kandi's Newer EV wrote:

@Weapon, I respectfully disagree.

I would say that China's local officials are regarded as the government. Pushing forward the Kandi EV sharing model in Hangzhou is indeed a project with local government involvement. How else would Kandi be able to secure such prime locations along sidewalks of heavily trafficked roads. Until Tesla issues a press release about a project with the Chinese government, I would say that Kandi has already made headway with the local government of China's provinces.

Telsa and Kandi will always be competing indirectly at first. Anyone who has rented a Kandi EV will not necessarily have access to driving a Tesla due to cost. However, anyone who owns a Tesla can still rent a Kandi EV for about $3 per hour as long as they are in a mega city that offers the Kandi EV sharing program.

1) The previous estimates were highly optimistic to prove a point. However, now that I think about it, it is actually 8 million people in Hangzhou that have access to Kandi EVs sharing program while Tesla EVs are limited to a few who can afford it.

2) I disagree. Europe has plenty of smaller cars on the road. Do you really also feel that Europeans who own smaller cars are better off driving a scooter?

3) Kandi EVs are built so the metal structure can be recycled as needed to produce the next generation EVs once newer technology is available. Kandi understands that metal is a limited resource, and should be shared among China's and the world's citizens as much as possible. Let us not forget that Kandi EVs are currently only available for renting and group leasing. This is not about the depreciation of monetary value for the EVs lifetime. As long as it can be recycled and used to build newer EVs, then it has served its role as a shared resource.

If I was the government and I had to make a choice between owning 10 Tesla EVs at $100K each verses 100 Kandi EVs at $10K each, I would go with the 100 Kandi EVs to provide the most bang for the buck for the public agencies and staff. The gains of many outweighs the gains of the few, that is how humans keep advancing forward.

Tesla selling EVs in China is competing on Kandi's home turf where Kandi does 90% of its business. Who do you think is currently more focused to win in China?

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.